Financial Sector Debt Bias
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Financial Sector Debt Bias
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Author : Ms.Oana Luca
language : en
Publisher: International Monetary Fund
Release Date : 2016-11-10
Financial Sector Debt Bias written by Ms.Oana Luca and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016-11-10 with Business & Economics categories.
Most tax systems create a tax bias toward debt finance. Such debt bias increases leverage and may negatively affect financial stability. This paper models and estimates debt bias in the financial sector, and present novel estimates for investment banks and non-bank financial intermediaries such as finance and insurance companies. We find debt bias to be pervasive, explaining as much as 10 percent of total leverage for regular banks and 20 percent for investment banks, with the effects most pronounced before the global financial crisis. Going forward, debt bias is likely to once again gain prominence as a key driver of leverage decisions, underscoring the importance of policy reform at this juncture.
Tax Policy Leverage And Macroeconomic Stability
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Author : International Monetary Fund. Fiscal Affairs Dept.
language : en
Publisher: International Monetary Fund
Release Date : 2016-12-10
Tax Policy Leverage And Macroeconomic Stability written by International Monetary Fund. Fiscal Affairs Dept. and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016-12-10 with Business & Economics categories.
Risks to macroeconomic stability posed by excessive private leverage are significantly amplified by tax distortions. ‘Debt bias’ (tax provisions favoring finance by debt rather than equity) has increased leverage in both the household and corporate sectors, and is now widely recognized as a significant macroeconomic concern. This paper presents new evidence of the extent of debt bias, including estimates for banks and non-bank financial institutions both before and after the global financial crisis. It presents policy options to alleviate debt bias, and assesses their effectiveness. The paper finds that thin capitalization rules restricting interest deductibility have only partially been able to address debt bias, but that an allowance for corporate equity has generally proved effective. The paper concludes that debt bias should feature prominently in countries’ tax reform plans in the coming years.
Recognizing The Bias
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Author : Mrs. Nina Budina
language : en
Publisher: International Monetary Fund
Release Date : 2015-11-24
Recognizing The Bias written by Mrs. Nina Budina and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015-11-24 with Social Science categories.
This paper argues that asset price cycles have significant effects on fiscal outcomes. In particular, there is evidence of debt bias—the tendency of debt to increase over the cycle— that is significantly larger for house price cycles than stand-alone business cycles. Automatic stabilizers and discretionary fiscal policy generally respond to output fluctuations, whereas revenue increases due to house price booms are largely treated as permanent. Thus, neglecting the direct and indirect impact of asset prices on fiscal accounts encourages procyclical fiscal policies.
Taxation Bank Leverage And Financial Crises
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Author : Ruud A. de Mooij
language : en
Publisher: International Monetary Fund
Release Date : 2013-02-25
Taxation Bank Leverage And Financial Crises written by Ruud A. de Mooij and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013-02-25 with Business & Economics categories.
That most corporate tax systems favor debt over equity finance is now widely recognized as, potentially, amplifying risks to financial stability. This paper makes a first attempt to explore, empirically, the link between this tax bias and the probability of financial crisis. It finds that greater tax bias is associated with significantly higher aggregate bank leverage, and that this in turn is associated with a significantly greater chance of crisis. The implication is that tax bias makes crises much more likely, and, conversely, that the welfare gains from policies to alleviate it can be substantial—far greater than previous studies, which have ignored financial stability considerations, suggest.
Tax Biases To Debt Finance
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Author : Ruud A. de Mooij
language : en
Publisher: International Monetary Fund
Release Date : 2011-05-03
Tax Biases To Debt Finance written by Ruud A. de Mooij and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2011-05-03 with Business & Economics categories.
Staff Discussion Notes showcase the latest policy-related analysis and research being developed by individual IMF staff and are published to elicit comment and to further debate. These papers are generally brief and written in nontechnical language, and so are aimed at a broad audience interested in economic policy issues. This Web-only series replaced Staff Position Notes in January 2011.
Curbing Corporate Debt Bias
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Author : Ruud A. de Mooij
language : en
Publisher: International Monetary Fund
Release Date : 2017-02-10
Curbing Corporate Debt Bias written by Ruud A. de Mooij and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017-02-10 with Business & Economics categories.
Tax provisions favoring corporate debt over equity finance (“debt bias”) are widely recognized as a risk to financial stability. This paper explores whether and how thin-capitalization rules, which restrict interest deductibility beyond a certain amount, affect corporate debt ratios and mitigate financial stability risk. We find that rules targeted at related party borrowing (the majority of today’s rules) have no significant impact on debt bias—which relates to third-party borrowing. Also, these rules have no effect on broader indicators of firm financial distress. Rules applying to all debt, in contrast, turn out to be effective: the presence of such a rule reduces the debt-asset ratio in an average company by 5 percentage points; and they reduce the probability for a firm to be in financial distress by 5 percent. Debt ratios are found to be more responsive to thin capitalization rules in industries characterized by a high share of tangible assets.
Is Banks Home Bias Good Or Bad For Public Debt Sustainability
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Author : Mr. Tamon Asonuma
language : en
Publisher: International Monetary Fund
Release Date : 2015-02-27
Is Banks Home Bias Good Or Bad For Public Debt Sustainability written by Mr. Tamon Asonuma and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015-02-27 with Business & Economics categories.
Motivated by the recent increase in domestic banks’ holdings of domestic sovereign debt (i.e., home bias) in the European periphery, this paper analyzes implications of banks’ home bias for the sovereign’s debt sustainability. The main findings, based on a sample of advanced (AM) and emerging market (EM) economies, suggest that home bias generally reduces the cost of borrowing for AMs and EMs when debt levels are moderate to high. A worsening of market sentiments appears to dimish the favorable impact of home bias on cost of borrowing particularly for EMs. In addition, for AMs and EMs, higher home bias is associated with higher debt levels, and less responsive fiscal policy. The findings suggest that home bias indeed matters for debt sustainability: Home bias may provide fiscal breathing space, but delays in fiscal consolidation may actually delay problems until debt reaches dangerously high levels.
Taxation And The Financial Crisis
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Author : Julian S. Alworth
language : en
Publisher: Oxford University Press
Release Date : 2012-02-23
Taxation And The Financial Crisis written by Julian S. Alworth and has been published by Oxford University Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012-02-23 with Business & Economics categories.
This book examines how tax policies contributed to the financial crisis; whether taxation can play a role in the reform efforts to establish a sounder and safer financial system; and the pros and cons of various tax initiatives.
Pouring Oil On Fire Interest Deductibility And Corporate Debt
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Author : Pietro Dallari
language : en
Publisher: International Monetary Fund
Release Date : 2018-12-07
Pouring Oil On Fire Interest Deductibility And Corporate Debt written by Pietro Dallari and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018-12-07 with Business & Economics categories.
This paper investigates the role of tax incentives towards debt finance in the buildup of leverage in the nonfinancial corporate (NFC) sector, using a large firm-level dataset. We find that so-called debt bias is a significant driver of leverage, for both small and medium-sized enterprises and larger firms, with its effect accounting for about a quarter of leverage. The strength of this effect differs with firm size, the availability of collateral, income and income volatility, cash flow, and capital intensity. We conclude that leveling the playing field between debt and equity finance through tax policy reform would decrease NFC leverage, reducing economic risks posited by leverage.
The Effect Of Leverage On Asset Sales Between Financial Institutions
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Author : Mr.Sonali Das
language : en
Publisher: International Monetary Fund
Release Date : 2017-09-08
The Effect Of Leverage On Asset Sales Between Financial Institutions written by Mr.Sonali Das and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017-09-08 with Business & Economics categories.
This paper analyzes how the leverage of financial institutions affects their demand for assets and the resulting value of transactions between financial institutions. The results show a positive relationship between buyer capital and the likelihood of buying assets, and between buyer capital and the value of the deal. That is, those institutions that are the least constrained in their ability to raise funding are those that demand assets and pay more for them. This result does not hold, however, for deposit-taking institutions that had access to several government programs designed to improve their liquidity position during the crisis of 2008.